This training super-charged my worry and my feeling of hopelessness because the world tipped into recession in 2007 and spiraled into World Monetary Disaster (GFC) in 2008. The extra I understood, the extra I felt like there was no method out of it. And plenty of pundits appeared to agree. I bear in mind revered monetary market prognosticators happening TV and proclaiming that the federal government’s bailouts of the massive banks, the automakers, and the GSEs had been proof that it was “the top of capitalism.”
The S&P 500 fell 57% from its Oct 2007 excessive of 1,565 to its March 2009 low of 666. (Supply: Yahoo Finance)
It wasn’t the top of capitalism, although many had been satisfied the housing market would by no means come again as we entered a “new normal” of gradual progress. One other well-liked phrase within the wake of the disaster was “secular stagnation.” Admittedly, I used to be offered on the concept that financial progress would ceaselessly be a protracted slog. You’ll be able to’t blame me. In 2010, I got laid off from my job and I re-entered a job market flooded with unemployed folks with backgrounds in finance.
However the post-GFC restoration helped me recognize the resilience of the shoppers and companies propelling the economic system ahead. I bought a fantastic job in 2011, and over the following decade my revenue soared. These years had been riddled with quite a few macro hiccups, however nothing might preserve the economic system and the inventory market from accelerating once more and blasting by means of file highs.
After which got here the COVID-19 pandemic.
These first 6-9 months had been surreal. I bear in mind feeling like I used to be residing in a sci-fi horror movie. At many factors I assumed this new unusual lifestyle could be everlasting. In the meantime, I used to be continually fearful that the entire economic system would collapse on itself.
COVID-19 brought on the economic system to almost screech to a halt. (Supply: FRED)
The invention of the vaccine definitely helped issues flip round. Quick ahead a number of years, and most issues within the economic system are again to regular. Notably, cruise and air travel have greater than recovered as most individuals have gotten comfy once more with being in tight areas with strangers — unless it’s in an office for work.
So regardless of the ache, the trauma, and even the lack of life, all these experiences ultimately confirmed that we’ll at all times bounce again.
The economic system and the inventory market have always had an upward bias.
This is sensible if you think about it. There are far more individuals who need issues to be higher, not worse. And that demand incentivizes entrepreneurs and companies to produce higher items and companies. The winners on this course of get greater as income grows. Some even get large enough to get listed within the inventory market. As income grows, so do earnings. And earnings drive inventory costs.
I am unable to think about something altering these attitudes. Certain, there can be durations of after we really feel indignant and hopeless alongside the way in which. However we’re by no means gonna get up at some point and resolve we now have all the pieces we wish or decide on the concept that what we have cannot be improved on.
And there’ll at all times be a way of urgency. Even throughout tough durations, folks perceive that life will not wait. You are getting older. Your children are getting older. Your mother and father are getting older. You probably have the sources, you won’t put your lives on hold. That is bullish because it retains the wheels on the economic system spinning.
Certain, many issues change after all of the occasions I discussed. However issues are at all times altering. Importantly, the modifications that caught have by no means prevented the economic system and the markets from setting new information.
If you happen to’ve been following the information at everywhere in the previous two months, you’ve got most likely heard not less than a number of people speaking about how the Trump administration’s method to commerce coverage is damaging the U.S. ‘s standing on this planet whereas additionally threatening to ship the worldwide economic system into recession.
Because the inventory market tumbled, phrases like “sell America” and “end of American exceptionalism” started to development. Popular measures of investor sentiment tanked.
Barron’s Huge Cash ballot revealed historic ranges of bearishness. (Supply: Barron’s)
To be clear, I feel the previous two months created some harm, and we now have but to study the extent of that harm. It is definitely attainable that we’re in a recession or headed for one. And it is definitely attainable the inventory market might take one other leg decrease.
However I am nowhere close to satisfied that we’re destined for an prolonged, multi-year interval of turmoil and ache.
Our system is superb at self-correcting. Whether or not it is by means of votes or one thing else, we at all times appear to discover a strategy to get issues again on observe towards growing prosperity and enhancing our way of life.
And to repeat what I said last week: There’s principally three eventualities traders at all times have to contemplate: 1) Issues enhance from right here, and the market goes up; 2) Issues worsen earlier than they get higher, which implies markets might fall earlier than resuming a extra agency rally; or 3) Issues worsen and by no means get higher.
If we’re going through state of affairs 3, then we could have greater issues than shares not recovering. However state of affairs 3 has never played out.
Eventualities 1 and a couple of favor long-term traders. Possibly issues worsen earlier than they get higher. (Observe: Timing market bottoms is nearly impossible.) However staying lengthy the inventory market covers you in case the low of this cycle is behind us.
I am going to go away you with Warren Buffett mentioned earlier this month at Berkshire Hathaway’s annual meeting:
“We’re at all times within the technique of change. We’ll at all times discover all types of issues to criticize within the nation. … If you happen to do not suppose the USA has modified since I used to be born in 1930… We have gone by means of all types of issues. We have gone by means of nice recessions. We have gone by means of world wars. We have gone by means of the event of the atomic bomb that we by no means dreamt of after I was born. So I’d not get discouraged about the truth that it would not seem like we have solved each drawback that is come alongside.”
The 94-year-old investor has lived by means of all the pieces, and he is made a fortune investing within the inventory market alongside the way in which.
There have been a number of notable knowledge factors and macroeconomic developments since our last review:
🇺🇸 Moody’s downgraded its ranking on the U.S. from Aaa to Aa1. Like most analysts on the market, I am not too shocked or involved by the motion. You’ll be able to learn my ideas on credit standing downgrades within the this 2023 TKer: Some thoughts on the U.S. credit rating downgrade 🤔
🛍️ Purchasing ticks larger. Retail sales elevated 0.1% in April to a file $724.1 billion.
(Supply: Census through FRED)
For extra on shopper spending, learn: We’re gonna get ambiguous signals in the economic data 😵💫 and Americans have money, and they’re spending it 🛍️
💳 Card spending knowledge is holding up. From JPMorgan: “As of 08 Could 2025, our Chase Client Card spending knowledge (unadjusted) was 2.3% above the identical day final yr. Based mostly on the Chase Client Card knowledge by means of 08 Could 2025, our estimate of the US Census Could management measure of retail gross sales m/m is 0.54%.”
(Supply: JPMorgan)
From BofA: “Complete card spending per HH was up 1.3% y/y within the week ending Could 10, based on BAC aggregated credit score & debit card knowledge. Relative to final week, the largest beneficial properties had been in department shops & grocery whereas leisure & lodging noticed the largest decline. Spending has recovered from the Easter slowdown. Total, there was some moderation however spending momentum stays.”
Could spending is probably going being boosted by shoppers pulling ahead purchases in an try to front-run tariffs.
For extra on shopper spending, learn: We’re gonna get ambiguous signals in the economic data 😵💫 and Americans have money, and they’re spending it 🛍️
👎 Client sentiment is tumbling. From the College of Michigan’s May Surveys of Consumers: “Sentiment is now down nearly 30% since January 2025. Slight will increase in sentiment this month for independents had been offset by a 7% decline amongst Republicans. Whereas most index elements had been little modified, present assessments of non-public funds sank almost 10% on the idea of weakening incomes. Tariffs had been spontaneously talked about by almost three-quarters of shoppers, up from nearly 60% in April; uncertainty over commerce coverage continues to dominate shoppers’ fascinated with the economic system.”
(Supply: University of Michigan)
Politics clearly performs a job in peoples’ notion of the economic system.
(Supply: Michael McDonough)
Notably, expectations for inflation look like a partisan matter.
(Supply: Michael McDonough)
For extra on the state of sentiment, learn: We’re gonna get ambiguous signals in the economic data 😵💫 and Beware how your politics distort how you perceive economic realities 😵💫
📦 Stock ranges fall. Total business inventories elevated simply 0.1% to $2.58 trillion in March. Nonetheless, this lagged gross sales progress through the interval. In consequence, the inventories/gross sales ratio declined to 1.34 in March, down from 1.35 in February.
(Supply: Census)
For extra on why we’re watching inventories, learn: How much inventory did companies actually build ahead of tariffs? 🤷🏻♂️
👍 Inflation cools. The Consumer Price Index (CPI) in April was up 2.3% from a yr in the past, down from the two.4% charge in March. Adjusted for meals and vitality costs, core CPI was up 2.8%, unchanged from the prior month’s degree.
(Supply: Nick Timiraos)
On a month-over-month foundation, CPI and core CPI elevated simply 0.2%. If you happen to annualize the three-month development within the month-to-month figures — a mirrored image of the short-term development in costs — core CPI climbed 2.1%.
(Supply: Nick Timiraos)
For extra on inflation, learn: The end of the inflation crisis 🎈and The Fed closes a chapter with a rate cut ✂️
⛽️ Gasoline costs tick larger. From AAA: “Gasoline costs are creeping again up simply in time for the busy summer season driving season. The nationwide common for a gallon of standard is up 4 cents from final week, as the value of crude oil rises and demand goes up. Sometimes, the seasonal improve in gasoline costs begins earlier within the spring, however decrease crude oil costs up to now this yr have stored that from occurring. Now, we’re beginning to settle in a extra typical sample. Regardless of the upward development, drivers are paying about 40 cents much less in comparison with final yr, which is nice information for the file 39.4 million People anticipated to take highway journeys over Memorial Day weekend.”
(Supply: AAA)
For extra on vitality costs, learn: Higher oil prices meant something different in the past 🛢️
💰 Family funds are deteriorating but additionally normalizing. From the New York Fed’s Q1 Household Debt & Credit report: “Transition into early delinquency held regular for almost all debt sorts; the exception was for scholar loans, which noticed a big uptick within the charge at which balances went from present to delinquent as a result of resumption of reporting of delinquent scholar loans on credit score stories after a virtually 5-year pause as a result of pandemic.”
(Supply: NY Fed)
Whereas the speed at which debt goes into delinquency has moved larger, the overall quantity of debt in delinquency stays low at simply 4.3% of excellent debt.
(Supply: NY Fed)
And whereas bank card delinquency charges could also be up, it is a mistake to say shoppers are maxing out their bank cards. The $1.2 trillion in bank card balances as of Q1 represents only a tiny fraction of bank card limits.
(Supply: NY Fed)
For extra on family funds, learn: Americans have money, and they’re spending it 🛍️
💼 Unemployment claims tread. Initial claims for unemployment benefits fell to 229,000 through the week ending Could 10, unchanged from the week prior. This metric continues to be at ranges traditionally related to financial progress.
(Supply: DoL through FRED)
For extra context, learn: A note about federal layoffs 🏛️ and The labor market is cooling 💼
👎 Small enterprise optimism falls. From the NFIB’s April Small Business Optimism Index report: “Only a few small companies export their items and companies, however thousands and thousands purchase imported items as inputs to their operations and people provide chains are at present in danger. Tariff coverage is abruptly and dramatically altering relative costs (prices), and relative costs drive all choices. Uncertainty stays elevated and thus warning clouds spending, hiring, and investing choices.”
(Supply: NFIB)
For extra on the state of sentiment, learn: The post-election sentiment sea change 🔃 and Beware how your politics distort how you perceive economic realities 😵💫
🏠 Homebuilder sentiment sinks. From the NAHB’s Robert Dietz: “Coverage uncertainty stemming largely from the stop-and-start tariff points has damage builder confidence however the preliminary commerce preparations with the UK and China are a welcome improvement. Nonetheless, the general actions on tariffs in latest weeks have had a unfavourable affect on builders, as 78% reported difficulties pricing their houses lately resulting from uncertainty round materials costs.”
(Supply: NAHB)
🔨 New dwelling building begins rise. Housing begins grew 1.6% in April to an annualized charge of 1.36 million models, based on the Census Bureau. Constructing permits ticked down 4.7% to an annualized charge of 1.41 million models.
(Supply: Census)
🏠 Mortgage charges tick larger. In line with Freddie Mac, the common 30-year fixed-rate mortgage rose to six.81%, up from 6.76% final week. From Freddie Mac: “The 30-year fixed-rate mortgage remained beneath the 7% threshold for the seventeenth consecutive week. Secure mortgage charges coupled with reasonably rising stock are attracting homebuyers into the market, with buy utility exercise up 18% from final yr.”
(Supply: Freddie Mac)
There are 147.8 million housing units within the U.S., of which 86.1 million are owner-occupied and about 34.1 million of that are mortgage-free. Of these carrying mortgage debt, nearly all have fixed-rate mortgages, and most of these mortgages have rates that were locked in earlier than charges surged from 2021 lows. All of that is to say: Most householders are usually not notably delicate to actions in dwelling costs or mortgage charges.
For extra on mortgages and residential costs, learn: Why home prices and rents are creating all sorts of confusion about inflation 😖
😬 That is the stuff execs are fearful about. From BofA’s Could World Fund Supervisor Survey: “The US-China assembly in Geneva was introduced in the midst of the Could FMS survey interval; even nonetheless, commerce conflict triggering world recession continues to be seen as the largest ‘tail threat’ per 62% of traders, albeit down from peak 80% in April (in 15-year historical past).”
(Supply: BofA)
For extra on dangers, learn: When uncertainty becomes unambiguously high 🎢, Three observations about uncertainty in the markets 😟 and Two times when uncertainty seemed low and confidence was high 🌈
🍾 The entrepreneurial spirit is alive. From the Census Bureau: “Complete U.S. Enterprise Purposes had been 449,508 in April 2025, down 0.9% from March 2025.”
(Supply: Census)
TKer is a small enterprise that launched three years in the past. For extra, learn: TKer’s 3rd birthday comes with an extraordinarily average stock market stat 📈🎂
🛠️ Industrial exercise flattens. Industrial production activity in April did not change a lot from prior month ranges. Manufacturing output decreased 0.4%.
(Supply: Federal Reserve)
For extra on financial exercise cooling, learn: 9 once-hot economic charts that cooled 📉
📈 Close to-term GDP progress estimates are monitoring constructive. The Atlanta Fed’s GDPNow model sees actual GDP progress rising at a 2.4% charge in Q2.
(Supply: Atlanta Fed)
For extra on GDP and the economic system, learn: 9 once-hot economic charts that cooled 📉 and You call this a recession? 🤨
🏢 Places of work stay comparatively empty. From Kastle Systems: “Peak day workplace occupancy was 62.8% on Tuesday final week, down half some extent from the earlier week. New York and San Jose skilled the most important declines, falling 2.5 factors to 66.8% and a couple of.9 factors to 57.1%, respectively. The common low was on Friday at 34.8%, similar because the earlier week.”
(Supply: Kastle)
For extra on workplace occupancy, learn: This stat about offices reminds us things are far from normal 🏢
Improve to paid
🚨 The tariffs announced by President Trump as they stand threaten to upend world commerce — with vital implications for the U.S. economic system, company earnings, and the inventory market. Until we get some more clarity, here is the place issues stand:
Earnings look bullish: The long-term outlook for the inventory market stays favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.
Demand is constructive: Demand for items and companies stays positive, supported by healthy consumer and business balance sheets. Job creation, whereas cooling, additionally remains positive, and the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market.
However progress is cooling: Whereas the economic system stays wholesome, progress has normalized from a lot hotter ranges earlier within the cycle. The economic system is less “coiled” today as major tailwinds like excess job openings have faded. It has develop into harder to argue that progress is future.
Actions converse louder than phrases: We’re in an odd interval on condition that the arduous financial knowledge has decoupled from the soft sentiment-oriented data. Client and enterprise sentiment has been comparatively poor, at the same time as tangible shopper and enterprise exercise proceed to develop and development at file ranges. From an investor’s perspective, what matters is that the arduous financial knowledge continues to carry up.
Shares are usually not the economic system: Analysts count on the U.S. inventory market might outperform the U.S. economy, thanks largely resulting from positive operating leverage. For the reason that pandemic, corporations have adjusted their price buildings aggressively. This has include strategic layoffs and investment in new equipment, together with {hardware} powered by AI. These strikes are leading to constructive working leverage, which implies a modest quantity of gross sales progress — within the cooling economic system — is translating to robust earnings growth.
Thoughts the ever-present dangers: In fact, this doesn’t imply we must always get complacent. There’ll always be risks to worry about — resembling U.S. political uncertainty, geopolitical turmoil, energy price volatility, cyber attacks, and many others. There are additionally the dreaded unknowns. Any of those dangers can flare up and spark short-term volatility within the markets.
Investing is rarely a clean experience: There’s additionally the tough actuality that economic recessions and bear markets are developments that each one long-term traders should expect to expertise as they construct wealth within the markets. Always keep your stock market seat belts fastened.
Assume long run: For now, there is not any motive to imagine there will be a problem that the economic system and the markets won’t be able to overcome over time. The long game remains undefeated, and it is a streak long-term traders can count on to proceed.
